UK could cut CO2 tax from 2021-22 if total carbon price remains high

LONDON (Reuters) - Britain should seek to reduce its carbon tax for power generators from 2021-22 if the total carbon price remains high, Treasury documents published as part of the country’s budget showed on Monday.

The current carbon price support tax of 18 pounds ($23.03) per ton will remain frozen for 2020-2021, as previously stated, the document said.

Britain’s total carbon price is currently made up of two levies with the domestic support tax paid by electricity generators on top of obligations under the European Emissions Trading System (ETS), which forces companies to surrender one carbon permit for every ton of CO2 they emit.

EU carbon permit prices have more than doubled this year to around 17 euros ($19) a ton, making the total carbon price for British power generators around 33 pounds a ton.

However, in the event of a no deal Brexit in March, Britain would automatically leave the EU ETS. Should that happen, the UK government said on Monday it would introduce a further Carbon Emissions Tax set at 16 pounds a ton which would be payable by stationary installations currently in the EU ETS, such as power generators and high emitting factories, from April 1, 2019.

“The new tax would maintain a stable carbon price for those stationary emitters currently covered by the EU ETS, providing stability for businesses and supporting the UK to meet its legally binding carbon reduction targets,” the government said.

Britain has a target to cut its carbon dioxide emissions by 80 percent from 1990 levels by 2050.

The government has said previously that it is considering four carbon pricing options for Britain when it leaves the European Union next year.